Related papers: Cross impact in derivative markets
We study the pricing of credit derivatives with asymmetric information. The managers have complete information on the value process of the firm and on the default threshold, while the investors on the market have only partial observations,…
Traders and investors involved in an option contract having the underlying stock in range bound are likely to lose their initial investment. Timing in buying an option contract is of capital importance. In a recent article [1] the…
We present a financial market model, characterized by self-organized criticality, that is able to generate endogenously a realistic price dynamics and to reproduce well-known stylized facts. We consider a community of heterogeneous traders,…
The dynamics of financial markets are driven by the interactions between participants, as well as the trading mechanisms and regulatory frameworks that govern these interactions. Decision-makers would rather not ignore the impact of other…
We introduce a new identification strategy for uncertainty shocks to explain macroeconomic volatility in financial markets. The Chicago Board Options Exchange Volatility Index (VIX) measures market expectations of future volatility, but…
Individuals are often influenced by the behavior of others, for instance because they wish to obtain the benefits of coordinated actions or infer otherwise inaccessible information. In such situations this social influence decreases the ex…
We consider the pricing of derivatives written on accumulated marks, such as weather derivatives or aggregate loss claims, using a self-exciting marked point process. The jump intensity mean-reverts between events and increases at jump…
We consider a novel use case for the Double Heston model (Christoffersen et al,, 2009), where the two Heston sub-variances have different spot/volatility correlations but the same volatility of volatility and mean reversion speed. This…
Constant and symmetric price impact functions, most commonly used in agent-based market modelling, are shown to give rise to paradoxical and inconsistent outcomes in the simplest case of arbitrage exploitation when open-hold-close actions…
The cryptocurrency market is volatile, non-stationary and non-continuous. Together with liquid derivatives markets, this poses a unique opportunity to study risk management, especially the hedging of options, in a turbulent market. We study…
We study the problem of the execution of a moderate size order in an illiquid market within the framework of a solvable Markovian model. We suppose that in order to avoid impact costs, a trader decides to execute her order through a unique…
This article proposes a generalized notion of extreme multivariate dependence between two random vectors which relies on the extremality of the cross-covariance matrix between these two vectors. Using a partial ordering on the…
Cryptocurrency, the most controversial and simultaneously the most interesting asset, has attracted many investors and speculators in recent years. The visibly significant market capitalization of cryptos also motivates modern financial…
We formulate and analyze an inverse problem using derivatives prices to obtain an implied filtering density on volatility's hidden state. Stochastic volatility is the unobserved state in a hidden Markov model (HMM) and can be tracked using…
We present a new model for credit index derivatives, in the top-down approach. This model has a dynamic loss intensity process with volatility and jumps and can include counterparty risk. It handles CDS, CDO tranches, Nth-to-default and…
We consider a market model that consists of financial investors and producers of a commodity. Producers optionally store some production for future sale and go short on forward contracts to hedge the uncertainty of the future commodity…
We solve the superhedging problem for European options in an illiquid extension of the Black-Scholes model, in which transactions have transient price impact and the costs and the strategies for hedging are affected by physical or cash…
One of the shortcomings of the Black and Scholes model on option pricing is the assumption that trading of the underlying asset does not affect the price of that asset. This assumption can be fulfilled only in perfectly liquid markets.…
The dynamics of market prices is described as the evolution of opinions in the trading community regarding future market behavior. The price then is a function of the voting process of the market players in favor to raise or reduce the…
It is well documented that a model for the underlying asset price process that seeks to capture the behaviour of the market prices of vanilla options needs to exhibit both diffusion and jump features. In this paper we assume that the asset…